Home Equity as an Investment Tool

Does anyone have experience with using a home equity loan to use as an investment tool? I’ve recently been contacted by a financial planner who uses a person’s home equity to by a choice of products that are said to have “guaranteed” returns. (eg., Insurance, gov investments, indexed annuities, etc.). I know similar activity has recently been frowned upon, in regards to using the equity in a more speculative way, such as stocks or bonds. Does anyone have advice on this topic or a good resource for info?

Isint this is a real estate investing forum? Regardless using equity in your primary is one of the most dangerous games to play. I think it’s safe to say that everyone has the potential to lose money at some point but do you want to lose your house as well? Risk vs. reward!

Mortgages…good point but I have used my equity on a LIMITED basis with much success. We wrote a contract on a new house (primary) and used the equity in our house to pay for the down payment $20,000. We have to pay another $30,000 for options in a few months we are going to use our equity for that as well. In the mean time our current house continues to appreciate, we currently have $150,000 in equity and by the time we have to sell april-june '06 we expect to have over $200K in equity in our current home and $100K in equity in our new house. So it can be done.

I’d be wary of a financial planner trying to sell you the mentioned products, since the interest rate spread (to you) will be minimal or negative on ‘guaranteed’ assets, verses the interest rate you will be paying for the HELOC. If you check, it’s probably a ‘commission’ deal, for him.

Banks advertise HELOC’s to take a vacation…etc. You know there will be no ROI there.

I deal with investors who use their equity for down payment/closing/rehab on investment properties. After their ‘exit’, they pay off their HELOC, and do it over again. It beats (or minimizes) borrowing ‘hard money’, if you are in the position to do it.

Hope this helps. Good Luck!

Absolutely…I too have used home equity, but first time investors need to focus on building that base without risking there primary…early on is when you make your most mistakes. And besides this guy wated to invest in stocks or annuities or something (who does that anymore? Hey MJ24 the money is in real estate.)

Banks are also realizing the need for rehab loans lets face it the majority of homes are generally built before the 60’s and 50’s which means they need some more tender loving care. Rehabs help achieve your goal by letting you purchase and rehab under 1 loan and base it off the ARV (100k purchase and 50k in rehab is 150k ARV loan amount 135K) this means your hitting up the home equity for only 15k as apposed to 60K (100k purchase 10k down and 50 k in repair) You could do 4 projects at the same time with the same money, and you don’t have to make payments for the 1st 6 months! ;D